AirAsia Rules Out Establishing More Southeast Asia Affiliates

AirAsia group CEO Tony Fernandes has publicly ruled out establishing any more affiliate carriers in Southeast Asia. But Fernandes says he hopes to establish one more joint-venture airline somewhere outside of Southeast Asia, although he rules out South Korea.

Fernandes made the disclosure in several entries on his Facebook page yesterday. AirAsia last year explored whether to buy T’way, a financially troubled low-cost carrier in South Korea that officials there have put up for sale.

In his entry, Fernandes says he has decided against establishing an airline in South Korea. He also says AirAsia has ruled out establishing any more airlines in Southeast Asia. He then specifically rules out Brunei, Cambodia, Laos, Singapore and Vietnam. “We already have got a fantastic spread of countries [in Southeast Asia] and we will now build all those to the size of Malaysia.”

Fernandes told Aviation Week last month that AirAsia has 60% of the Malaysian market. It also has affiliate carriers in Thailand, Indonesia and the Philippines. In terms of carriers outside of Southeast Asia, AirAsia has one: AirAsia Japan.

Fernandes says AirAsia has “done an analysis of all business for the next five years” and concluded that “we may do one more joint venture. Then that’s it for next five to 10 years.” India’s news media has been speculating for months that Fernandes, who is Malaysian but of Indian descent, will choose India as the next market for an AirAsia joint venture. But these reports are unsubstantiated.

The fact that AirAsia has ruled out any more joint ventures in Southeast Asia means the only other sizeable markets left in Asia besides India are China, Taiwan, Pakistan and Sri Lanka. Airlines in China, however, appear to be taking a wait-and-see approach when it comes to establishing low-cost carrier offshoots. The Civil Aviation Administration of China is also wary of allowing foreign carriers to invest in Chinese airlines.

Pakistan, meanwhile, is a volatile market dogged by social unrest and violence. Sri Lanka’s market is largely controlled by national carriers Sri Lankan Airlines and Mihin Lanka. Taiwan, however, is one market that is yet to have a low-cost carrier but appears open to the prospect.

Vincent Lin, the chairman of Taiwan carrier TransAsia Airways, has said publicly that his airline is keen to establish a low-cost carrier in Taiwan in a joint-venture partnership. Taiwan has a small domestic market, but there is substantial passenger traffic from Taiwan to China and Japan.

Fernandes’ remarks come amid a backdrop of negative comments from some financial analysts concerned that AirAsia may be overextending itself. AirAsia’s recently established affiliates in Japan and the Philippines have posted quarterly losses, and AirAsia faces the prospect of a costly price war in Malaysia. Indonesia’s Lion Air is establishing an affiliate in Malaysia called Malindo Air, which aims to start flying in March. AirAsia’s affiliate in Indonesia, meanwhile, faces an uphill battle winning domestic market share. It has also delayed its initial public offering (IPO) several times. Fernandes, in his Facebook entry, stresses that the IPO of Indonesia AirAsia is still on the agenda.